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Welcome to this edition of Update, a publication of the Payment Cards Center highlighting recent activities. Update complements the information available elsewhere on this website, including a complete list of the PCC's papers.
The Philadelphia Fed established the Payment Cards Center five years ago as an initiative to develop insights into issues affecting consumer credit and payments. During this time, we have strived to create an agenda that both supports original research and stimulates dialogue among stakeholders. In this issue, we highlight several recent efforts intended to help inform debate on issues facing the industry and policymakers.
Since the PCC’s inception, more than 60 articles and papers have been written on a wide range of issues. This output consists of academic working papers, written by colleagues in the Bank’s Research Department and affiliated visiting scholars; and discussion papers, which include more generally accessible analyses written by the PCC’s staff. This division of output between academic research and industry analysis meets the need for both strong theoretical study and a more descriptive examination of industry developments. While Research Department economists are drawn from academia, the PCC’s industry specialists have backgrounds in the financial services field. Our expectation that these different backgrounds and skills would complement each other has been confirmed and has resulted in close collaboration and mutual support.
In this issue, we focus on three recent discussion papers written by the PCC’s industry specialists. In the first, James McGrath examines industry developments and consumer adoption issues associated with online bill payments. He notes that while such payments are not significant today, trends suggest that online bill payments will grow rapidly in the years to come and will increasingly displace checks for many bill-paying applications.
In Julia Cheney’s recent paper on identity theft, she asks the question: Do definitions still matter? In response, she differentiates four types of financial fraud that fall under the broad legal definition of identity theft. As she argues, there are important differences in the processes needed to identify, mitigate, and resolve these types of fraud, and indeed, definitions do matter in developing solutions.
The last paper highlighted, written by Mark Furletti, is “The Laws, Regulations, and Industry Practices That Protect Consumers Who Use Electronic Payment Systems: Policy Considerations.” This is the third paper in a series that examines protections associated with the use of credit cards, debit cards, prepaid cards, and ACH e-checks at the point of sale. Among other things, this series contributes a unique analysis of the application of rules promulgated by private sector payment networks and associations, along with the actual practices of individual banks in providing consumer protections.
As the Payment Cards Center’s agenda has evolved over the past five years, we have found that one of our most effective tools in developing new insights has been our program of conferences. Over time, we have discovered that the critical success factor is getting the right people together to discuss and debate the right topics. Our challenge is to make sure we include subject matter experts from a variety of perspectives and to develop agendas that reflect key market issues.
In this issue, we highlight three conferences held over the summer. A summary of a fourth conference held in the fall in conjunction with the Bank’s Research Department will be published in an upcoming issue of the Bank’s Business Review.
The first of the three conferences described in more detail later was our June forum on Federal Consumer Protection Regulation: Disclosures and Beyond. To discuss this very current topic, we brought together a relatively small group of subject experts from credit card banks, as well as attorneys, policymakers, economists, and legal scholars. While the opinions of the various individuals often differed, there was a somewhat surprising agreement on the nature of the problems posed by current disclosure requirements and a consensus that improving the process will, among other things, require clearer language and greater attention to where disclosure emphasis should lie.
The second conference focused on risk in electronic payments. Motivated in part by recent disclosures about compromised data and the attention given to identity theft and other forms of consumer fraud, the conference brought together some 100 participants for a day-and-a-half discussion of emerging risk challenges. Cosponsored with the Electronic Funds Transfer Association, this event is another example of how the PCC’s agenda is shaped by industry participants. Subjects ranged from the legal and regulatory effects on payment risk management practices to emerging strategies to safeguard personal information maintained by various market participants. A common theme uncovered in several discussions was the critical role consumer confidence plays in adopting new payment mechanisms. The conference affirmed the benefits of developing higher levels of cooperation and commitment to mitigating risk in the changing environment of electronic payments.
The last conference covered in this issue is Payment Cards and the Unbanked: Prospects and Challenges. This event benefited from a wide range of perspectives on how emerging electronic payment schemes might provide greater benefits to this consumer segment. Of the various product innovations discussed, prepaid cards were viewed as having significant potential for improving delivery of financial services to unbanked or underserved consumers. Discussions also raised several policy issues concerning the important role nonbank service providers are playing in these emerging markets, particularly in distribution functions.
I hope you enjoy reading about our papers and conferences and the other information in this issue of Update. I welcome your suggestions as to how the PCC can better fulfill its mission and add value for all market participants. Thank you for your continued support.